Sample economics papers (Units 1-4) & Mark Schemes

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  • Contact Top Class IB Tutors for any assignment help: Email: ramprhr@gmail.com Website: www.topclassibtutors.com Online Assignment Help/Tuition all over the world (100% guarantees for top class grades); Mail us or call us for any query: Email: ramprhr@gmail.com Website: www.topclassibtutors.com Ph: +91 9911918255 and +91 9918492994 The IB Diploma Programme Economics course forms part of group 3—individuals and societies. The study of economics is essentially about dealing with scarcity, resource allocation and the methods and processes by which choices are made in the satisfaction of human wants. our tutors offer are IB DP HL/SL Studies Economics Internal assessment IA commentary and extended essay write up. IB Tutor provides assignment writing help in all the IB subjects. 1 IB maths mathematics studies IA tutor help HL SL exploration extended essay example sample 2. IB physics IA labs extended essay help tutors example sample 3. IB chemistry IA labs extended essay help tutors example sample 4. IB Biology IA labs extended essay help tutors example sample 5. IB written task WT 1 & 2 help tutors example sample 6. IB Written Assignment WA 1 & 2 online help tutors example sample 7. IB English Extended Essay EE online help tutors example sample 8. IB English IOP IOC online help tutors example sample 9. IB theory of knowledge (TOK) essay help tutors example sample, TOK Presentation help guidance 10. IB economics IA commentary extended essay help tutors example sample eco 11. IB business management bm IA extended essay help tutors sample example 12. IB ITGS (information technology in a global society) project extended essay help tutors example sample 13. IB history geography IA extended essay help tutors example sample 14. IB Environmental systems & society ESS Lab Report IA Extended Essay EE Help Tutor Sample Example Online
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Sample economics papers (Units 1-4) & Mark Schemes

  1. 1. Sample Assessment MaterialsSeptember 2007GCE EconomicsEdexcel Advanced Subsidiary GCE in Economics (8EC01)First examination 2009Edexcel Advanced GCE in Economics (9EC01)First examination 2010
  2. 2. Contents A Introduction ............................................................................................3 B Sample question papers..............................................................................5 Unit 1: Competitive Markets - How They Work and Why They Fail............................. 7 Unit 2: Managing the Economy ..................................................................... 31 Unit 3: Business Economics and Economic Efficiency .......................................... 47 Unit 4: The Global Economy ........................................................................ 71 C Sample mark schemes .............................................................................103 General marking guidance ......................................................................... 105 Unit 1: Competitive Markets - How They Work and Why They Fail ......................... 107 Unit 2: Managing the Economy .................................................................... 129 Unit 3: Business Economics and Economic Efficiency ......................................... 139 Unit 4: The Global Economy ....................................................................... 151Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 1
  3. 3. 2 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  4. 4. A Introduction These sample assessment materials have been prepared to support the specification. Their aim is to provide the candidates and centres with a general impression and flavour of the actual question papers and mark schemes in advance of the first operational examinations.Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 3
  5. 5. 4 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  6. 6. B Sample question papers Unit 1: Competitive Markets - How They Work and Why They Fail ............................ 7 Unit 2: Managing the Economy ..................................................................... 31 Unit 3: Business Economics and Economic Efficiency .......................................... 47 Unit 4: The Global Economy ........................................................................ 71Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 5
  7. 7. 6 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  8. 8. Surname Initial(s)Centre Paper ReferenceNo. SignatureCandidateNo. 6 E C 0 1 1 Paper Reference(s) 6EC01/1 Examiner’s use only Edexcel GCE Team Leader’s use only Economics Advanced Subsidiary Question Leave Number Blank Unit 1: Competitive Markets – How They 1 Work and Why They Fail 2 Sample Assessment Material 3 Time: 1 hour 30 minutes 4 5 6 Materials required for examination Items included with question papers 7 Nil Nil 8 9 10Instructions to CandidatesIn the boxes above, write your centre number, candidate number, your surname, initials and signature.Check that you have the correct question paper.Answer ALL the questions in Section A and ONE question from Section B. Write your answers in thespaces provided in this question paper.Indicate which question you are answering by marking the box ( ).If you change your mind, put a line through the box ( ) and then indicate your new question with across ( ). Do not use pencil. Use blue or black ink.Information for CandidatesThe marks for individual questions and the parts of questions are shown in round brackets: e.g. (2).There are 10 questions in this question paper.The total mark for this paper is 80: 32 marks for Section A and 48 marks for Section B.There are 24 pages in this question paper. Any blank pages are indicated.Advice to CandidatesQuality of written communication will be taken into account in the marking of your answers inSection B, Question 9(c) and 9(d)(ii) or Question 10(d)(i) and 10(d)(ii). These questions are indicatedwith an asterisk. Quality of written communication includes clarity of expression, the structure andpresentation of ideas and grammar, punctuation and spelling. TotalThis publication may be reproduced only in accordance withEdexcel Limited copyright policy.©2007 Edexcel Limited. Turn over Printer’s Log. No. N32848AW850/XXXX/57570 3/2 *C32848A0120* Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 7
  9. 9. Leave blank SECTION A Answer ALL the questions in this section. You should spend 30 minutes on this section. Use the data to support your answers where relevant. You may annotate and include diagrams in your answers.1. Statement 1: The government should increase the national minimum wage to reduce inequality. Statement 2: A significant increase in the national minimum wage above the market equilibrium wage is likely to cause unemployment. Which of the following best describes the two statements above? A Statement 1 is normative and statement 2 is positive. B Both statements are normative. C Statement 1 is positive and statement 2 is normative. D Both statements are positive. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. (3) Q1 (Total 4 marks)8 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  10. 10. Leave blank 2. Steel (million tonnes) 200 Z X 100 Y 0 100 Wheat (million tonnes) The diagram refers to an economy producing two commodities, wheat and steel. At first the economy has production possibilities as shown by the line XY. The production possibility frontier then moves to ZY. Which of the following does this change show? A A decrease in production of steel. B An increase in the opportunity cost of producing wheat. C An increase in the demand for steel. D Technological improvements in the wheat industry. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q2 (3) (Total 4 marks)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 9
  11. 11. Leave blank3. Wage rate of building workers £ S2 S1 A v z S3 D x B w C y D2 D1 D3 0 Number of building workers The diagram shows the labour market for building workers in London where the initial equilibrium position is X. Preparation work for the London Olympic Games has caused a significant increase in the demand for housing, roads and sporting venues. At the same time there has been an increase in immigration of building workers from Eastern Europe. What is likely to be the new equilibrium position A, B, C or D? Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q3 (3) (Total 4 marks)10 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  12. 12. Leave blank 4. Price £ S2 10 S1 5 4 D 0 80 100 Quantity supplied/demanded per time period (units) The diagram shows how a tax imposed on a product causes its supply curve to shift from S1 to S2. Which of the following best describes the market situation shown? A It is a specific tax and its incidence falls mainly on producers not consumers. B It is an ad valorem tax and its incidence falls mainly on consumers rather than producers. C It is a specific tax and its incidence falls mainly on consumers not producers. D It is an ad valorem tax and its incidence falls mainly on producers not consumers. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 11
  13. 13. Leave blank .............................................................................................................................................. .............................................................................................................................................. (3) Q4 (Total 4 marks)12 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  14. 14. Leave blank 5. A London health club has 5,000 members. They each pay monthly fees of £80. The health club owner conducts market research and estimates that price elasticity of demand for its membership is – 0.5. If the owner increases monthly fees by 10%, the change in total revenue is likely to be: A + £22,000 B – £18,000 C – £22,000 D + £18,000 Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. (3) Q5 (Total 4 marks)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 13
  15. 15. Leave blank6. Price per tonne £ S X Y P1 Z W P2 D 0 Q1 Q2 Q3 Q4 Quantity wheat (tonnes) The diagram shows the European Union wheat market. It operates a minimum price scheme. The government guarantees to purchase any surplus output at the minimum price. At first the minimum price is at 0P1 and the government purchases Q1Q4 wheat. If the minimum price is reduced from 0P1 to 0P2 which of the following is correct? A Consumer surplus falls. B Excess demand for wheat falls. C Government spending on the minimum price scheme for wheat falls. D Output of wheat increases. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................14 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  16. 16. Leave blank .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q6 (3) (Total 4 marks)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 15
  17. 17. Leave blank7. National defence is not likely to be provided in a free market economy. This may be because of: A the existence of private security firms. B the ability of firms to charge individuals for their consumption. C improved international relations. D the free rider problem. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q7 (3) (Total 4 marks)16 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  18. 18. Leave blank 8. Price per vaccination £ Marginal Private Cost = Marginal Social Cost y x Marginal Social Benefit Marginal Private Benefit 0 Qe Q1 Quantity of vaccinations The diagram shows the market for vaccinations. There are no external costs and no government intervention. Which of the following is correct? A The market equilibrium output exceeds the social optimum output. B There is an under-consumption of vaccinations. C There are no external benefits. D At the market equilibrium output, marginal social cost exceeds marginal social benefit. Answer (1) Explanation .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q8 (3) (Total 4 marks) TOTAL FOR SECTION A: 32 MARKSEdexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 17
  19. 19. Leave blank SECTION B Answer EITHER Question 9 or Question 10. If you answer Question 9 put a cross in this box . You should spend 45 minutes on this section.9. Road traffic and road pricing Year Cars, taxis & vans Buses & coaches Lorries Total 2000 429.1 5.2 28.2 462.5 2001 436.5 5.2 28.1 469.8 2002 447.9 5.2 28.3 481.4 2003 451.0 5.4 28.5 484.9 2004 458.9 5.2 29.4 493.5 2005 459.8 5.2 29.0 494.0 Figure 1: UK Road traffic by vehicle type (billion vehicle kilometres) (Source: Department for Transport, National Road Trafc Survey 2006) Extract 1 The cost of driving is going to become much higher as the Government is set to increase motoring taxes over the next decade. Each litre of petrol already includes a fuel tax and value added tax totalling 67 per cent of its price. The top rate of vehicle excise duty (vehicle tax disc) is to be increased further for high polluting vehicles to encourage drivers to switch to fuel-efficient cars. In addition the Mayor of London intends to increase the daily congestion charge to £25 for such vehicles. These measures appear to be working as the gas-guzzling large ‘4×4’ drive vehicles have suffered a major decline in sales. Road pricing is set to be applied to Britain’s motorways and main roads. A pilot road charging scheme will start in 2010. According to David Miliband, the Environment Secretary, road pricing should reflect the full social cost of journeys and encourage motorists to switch to public transport. Road space is a scarce resource and motorists should directly pay according to the time of day and amount of congestion caused. It should reduce the number of non-essential journeys and increase the flow of traffic. However, concerns have been raised over the cost of introducing road pricing and its impact on routes which have no charge. Furthermore, low income motorists will be hit the hardest and road pricing may reduce labour mobility. (Source: adapted from ‘Brown set to heed calls for wide-ranging green taxes’ by Greg Hurst, The Times, 30th October 2006)18 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  20. 20. Leave blank (a) (i) With reference to Figure 1, calculate the percentage increase in distance travelled by cars, taxis and vans between 2000 and 2005. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (2) (ii) Assess the significance of three possible causes of the increase in distance travelled by cars, taxis and vans. First cause .............................................................................................................. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ Second cause ......................................................................................................... ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ Third cause ............................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (8)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 19
  21. 21. Leave blank (b) Giving examples, distinguish between the private costs and external costs of motoring. ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... (6) *(c) Examine the case for and against an increase in government subsidies to bus and coach companies. Illustrate your answer with an appropriate subsidy diagram. ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... .......................................................................................................................................20 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  22. 22. Leave blank ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... (12)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 21
  23. 23. Leave blank (d) (i) Examine the likely impact of an increase in vehicle excise duty on road traffic growth (Extract 1, line 4). ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (8) *(ii) To what extent are the benefits likely to exceed the costs of a national road pricing scheme? ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................22 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  24. 24. Leave blank ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (12) Q9 (Total 48 marks)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 23
  25. 25. Leave blank If you answer Question 10 put a cross in this box . You should spend 45 minutes on this section.10. The price of rubber 120 100 Pence 80 Natural rubber 60 40 20 2001 2002 2003 2004 2005 2006 Years Figure 2: Natural rubber price Extract 2 The price of natural rubber has fluctuated greatly over the past decade. Yesterday it reached £1.18 per kilo, a 22-year high in the market, responding to a combination of demand and supply factors. China’s economy is consuming vast quantities of natural rubber as living standards and the demand for motor vehicles rise. Natural rubber and synthetic rubber are in direct competition with each other: last year’s production of natural rubber was 8.7 million tonnes compared to 11.9 million tonnes of synthetic rubber. The cost of producing synthetic rubber has also risen significantly due to the high oil price. Matters have been made worse by poor weather in Thailand, Malaysia and Indonesia, which between them produce 60% of the world’s natural rubber. The shortfall in production of natural rubber is likely to continue in the foreseeable future, says the International Rubber Study Group, which predicts a deficit of 820,000 tonnes by 2010, up from 250,000 tonnes this year. This has led to speculative buying of natural rubber. Discussions on stabilising natural rubber prices through a buffer stock scheme have taken place. However, little progress has been made since the failure of the International Rubber Organisation seven years ago due to the growth in competition from synthetic rubber. Buffer stock schemes rely on the participation of all major producers as well as sufficient funds to finance surplus production. They also require spare stocks in times of shortage. However, with rising prices there is little incentive to enter into such agreements.(Source: adapted from ‘Rubber price stretched to a 22-year high’ by Carl Mortished, The Times, 12th May 2006)24 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  26. 26. Leave blank (a) (i) The price of natural rubber ‘reached a 22-year high in the market’ (Extract 2, line 2). With reference to the data and using a supply and demand diagram, explain why this happened. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (7) (ii) Comment on the likely cross elasticity of demand between synthetic rubber and natural rubber. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (4)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 25
  27. 27. Leave blank (b) What can you learn from the passage about the price elasticity of supply for natural rubber? Justify your answer. ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... (5) (c) Assess the likely impact of the rise in price of natural rubber for consumers of natural rubber such as car manufacturers. ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... (10)26 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  28. 28. Leave blank *(d) (i) Evaluate two likely consequences of fluctuating prices on producers of natural rubber. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (10)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 27
  29. 29. Leave blank *(ii) Assess the likely success of a buffer stock scheme for natural rubber. (Use an appropriate diagram in your answer.) ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ Q10 (12) (Total 48 marks) TOTAL FOR SECTION B: 48 MARKS TOTAL FOR PAPER: 80 MARKS END28 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  30. 30. BLANK PAGEEdexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 29
  31. 31. BLANK PAGE30 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  32. 32. Surname Initial(s)Centre Paper ReferenceNo. SignatureCandidateNo. 6 E C 0 2 1 Paper Reference(s) 6EC02/1 Examiner’s use only Edexcel GCE Team Leader’s use only Economics Advanced Subsidiary Question Leave Number Blank Unit 2: Managing the Economy 1 Sample Assessment Material 2 Time: 1 hour 30 minutes Materials required for examination Items included with question papers Nil NilInstructions to CandidatesIn the boxes above, write your centre number, candidate number, your surname, initials and signature.Check that you have the correct question paper.Write your answers in the spaces provided in this question paper.Answer EITHER Question 1 OR Question 2.Do not use pencil. Use blue or black ink.Indicate which question you are answering by marking the box ( ).If you change your mind, put a line through the box ( ) and then indicate your new question with across ( ).Information for CandidatesThe marks for individual questions and the parts of questions are shown in round brackets: e.g. (2).There are 2 questions in this question paper. The total mark for this paper is 80.There are 16 pages in this question paper. Any blank pages are indicated.Advice to CandidatesQuality of written communication will be taken into account in the marking of your answers inQuestion 1 c(ii) and 1d and in Question 2 b(i) and 2d. These questions are indicated with an asterisk.Quality of written communication includes clarity of expression, the structure and presentation ofideas and grammar, punctuation and spelling. TotalThis publication may be reproduced only in accordance withEdexcel Limited copyright policy.©2007 Edexcel Limited. Turn over Printer’s Log. No. N32849AW850/ /57570 3/2 *N32849A0116* Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 31
  33. 33. Answer EITHER Question 1 OR Question 2. If you answer Question 1 put a cross in this boxQuestion 1 Changes in world oil prices 300 250 200 150 100 50 0 2002 2003 2004 Figure 1: Index of dollar oil prices Jan 2002=100 GDP per capita Life expectancy at Human Purchasing power birth (years) Development Index parities, US$UK 30821 78.5 .940China 5896 71.9 .768Zambia 943 37.7 .407Figure 2: GDP per head (standardised) and other measures of economic performance, 2004 values Source: United Nations Human Development Report 200632 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  34. 34. Extract 1 Record oil prices cut pace of UK growth The UK’s economic growth has slowed again, under the weight of record oil prices and weakening manufacturing. The Office for National Statistics said the economy expanded by just 0.4 per cent in the third quarter of 2004, as industry suddenly diverted from its apparent recent recovery. Continued rises in the costs of oil, energy and metals will ultimately weaken markets as well as eat into profit margins. With other cost pressures rising we would expect to see the inflation rate, as measured by the Consumer Price Index (CPI), moving above the 2 per cent target. Source: www.money.telegraph.co.uk Extract 2 Stability and productivity In any other decade, a 100 per cent increase in oil prices, a 50 per cent rise in industrial material prices and a 70 per cent rise in metal prices would have led to inflation and macroeconomic instability. But CPI inflation is just 1.25 per cent. To succeed in the long term in the global economy the UK must close the productivity gap with its trading partners. At present, compared to the UK, productivity is more than 20 per cent higher in France, Germany and the USA. We should build on our strengths – our stability, scientific genius and world-class universities. Further, we must invest in education and skills: we have 30 per cent unskilled employees, a higher proportion than any major European Union country. Source: adapted from The Pre-Budget Report, 2 December 2004Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 33
  35. 35. Leave blank (a) Refer to Figure 1 and Extract 1. (i) What is meant by the phrase ‘index of dollar oil prices Jan 2002 = 100’? ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (4) (ii) Using an appropriate diagram, explain the likely effect of the change in oil prices on the level of aggregate supply and the price level in the UK. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (10)34 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  36. 36. Leave blank (b) Using the data in Figure 2: (i) Outline one advantage and one disadvantage of using GDP figures to measure standards of living. Advantage .............................................................................................................. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ Disadvantage ......................................................................................................... ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (8) (ii) GDP measures economic development. Examine the relative merits of two other indicators as measures of economic development. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (12)Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 35
  37. 37. Leave blank (c) Referring to Extract 2: (i) Explain what is meant by the term ‘productivity gap’ (line 4). ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (4) *(ii) Differences in productivity cause different growth rates in economies. Examine two other likely causes of different economic growth rates in economies. ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ ................................................................................................................................ (12) *(d) An economy has significant rises in its input costs. Examine the likely effectiveness of supply side policies for the control of inflation in such an economy. ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... .......................................................................................................................................36 Sample Assessment Materials © Edexcel Limited 2007 Edexcel GCE in Economics
  38. 38. Leave blank ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... .......................................................................................................................................Edexcel GCE in Economics © Edexcel Limited 2007 Sample Assessment Materials 37

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